Borrowing money is something that we all will do at some point in our lives. With college tuition costing up to $20,000 or more a year and homes starting at $100,000 in most parts of America, it could take an entire lifetime to save enough to pay those expenses outright. However, if you are going to borrow money, it is important to know how to pay that money back in a timely manner.
Here are four different types of loans that you might end up taking out and how to best pay them off:
Student Loans
A private student loan is technically an unsecured loan, but most lenders require a cosigner for those who have poor or insufficient credit histories. Federal loans are guaranteed by the government, which means that most people qualify despite their credit score and income. Tactics for paying off a student loan include getting grants and scholarships, working as a teacher or other industries of need or by enrolling in an income-based repayment plan.
Car Loans
Car loans are secured loans that use the vehicle as collateral. They typically come with interest rates of five percent or less for those with good or average credit. Of course, this might depend on how you decide to go about financing it, whether or not you’re a first time buyer, and how good your credit score is. As a car is a depreciating asset, it is recommended that a buyer have a significant down payment at the time of purchase. The amount that you put down in your down payment will actually decrease the amount that you will put towards paying off the loan every month. It is not uncommon for drivers to trade in their vehicles before they are fully paid off, and any equity is used as a down payment on the next vehicle. To help decrease the amount of interest that you’ll be paying on this type of loan, make sure that you shop around at different banks and dealers to see which one will give you the better rate.
Home Loans
Traditional mortgages require that borrowers put 20 percent of the purchase price down prior to close. Like a car loan, a home loan is a secured loan using the house as collateral. Strategies to pay down a mortgage faster include making extra payments and refinancing when interest rates drop to lower the mortgage’s monthly payment and put more of each payment toward the principal balance.
Payday Loans
Same day loans, such as those you can get from Payday Express and other such services, are unsecured and don’t require a credit check as a prerequisite to have a loan request approved. Borrowers may wish to repay a payday loan by selling personal property, leasing a room in their homes or getting a second job for the month or so that it will take to repay it. The amount of money that you’re able to get through this type of loan might vary depending on who you’re getting it from.
If you borrow money, you should know how and when you need to pay it back. Understanding whether a loan is secured or unsecured may help you decide whether you can get the money at a reasonable interest rate without risking a valuable asset for the right to borrow it.
